Pulling the plug: How NARH got to this point

NORTH ADAMS -- How does a tax-exempt health care organization reporting $68 million in revenue a year ago manage to find itself seeking Chapter 7 bankruptcy and closing operations with only a three-day notice to more than 500 employees?

For Northern Berkshire Healthcare, which operates North Adams Regional Hospital, it was a combination of construction projects and purchases; salary, pension and benefit obligations; decreasing federal reimbursements for patient care; and a drop in patient volume that combined to bury the company.

Ultimately, the cash to keep the doors open wasn't there, according to Paul Hopkins, the spokesman for Northern Berkshire Healthcare. The board of trustees, with two lawyers and two accountants, couldn't find a way to make the books work any longer.

"The simple fact is that [Northern Berkshire Healthcare] no longer has the financial resources to meet our obligations to employees in terms of payroll and vacation pay," Hopkins said.

On Thursday, a judge blocked the hospital from immediately closing its emergency department and other essential services. The ruling grants time for Berkshire Medical Center to pursue the license it needs to run a satellite emergency center at the hospital. Meanwhile, Berkshire Health Systems, BMC's parent company, and BMC stepped in Wednesday to help keep Northern Berkshire OB-GYN and Northern Berkshire Family Medicine running in North County for the long-term future.

But the rest of the hospital, a surgical practice and the Northern Berkshire Visiting Nurse Association & Hospice will close Friday as scheduled.

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The Eagle asked how much money the hospital needed to keep going.

Hopkins responded, "It's not so much a question of a cash infusion as the need for a long-term solution. Again, we exhausted every avenue in searching for that long-term solution, and even though every person and organization involved was deeply committed to finding that solution, we have run out of time."

The company will be filing for Chapter 7 bankruptcy, Hopkins said. If granted, Northern Berkshire Healthcare's assets could be liquidated and its debts settled.

Arthur Turton, a urologist at the hospital for 30 years and a board of trustees member for nine until stepping down in December, said the hospital had a high percentage of Medicaid patients, for whom the hospital did not receive as high of a reimbursement as other patients. Turton was chairman of the board of trustees during the hospital's declaration and emergence from Chapter 11 bankruptcy.

Hopkins said that Medicaid paid the hospital "below cost." In other words, the hospital spent more on the care it gave them than Medicaid reimbursed.

Patient volume declined by about 10 percent and greater in some areas over the past year, Hopkins said.

As a result, "revenues declined sharply" over the past year, Turton said.

While there are still unanswered questions, such as how the hospital didn't foresee the cash crunch sooner and couldn't give its employees better notice, an examination of the hospital's financials give a number of clues as to how it got here.

The company's bondholders -- Bank of New York Mellon Trust Company, Wells Fargo and Nuveen Investments -- did not put any ultimatums on the hospital that contributed to the sudden closure, according to Hopkins.

A Chapter 11 bankruptcy filing in 2011 put the hospital's outstanding debt at $43.7 million to bondholders, plus $27 million in unfunded pension obligations. The Massachusetts Development Finance Agency and Massachusetts Health and Educational Facilities Authority had issued bonds in 1996, 1999 and 2004, which the hospital used for equipment purchases, renovations and expansions at the complex.

In 1999, the hospital used part of those funds to buy Sweet Brook Transitional Care & Living Centers and Sweetwood Continuing Care Retirement Community for approximately $19 million. In 2010, the hospital sold the facilities for $7 million.

In 2004, the hospital embarked on a $20 million renovation and expansion project. Turton said this week it was a good decision.

"There was huge fundraising in the community," he said. "The financial situation was much better at the time."

Turton said the refurbishments were needed to keep the hospital up to date and attract more patients.

"Everybody thought they could pay those bonds," he said.

But it didn't happen.

Sour investments also took a toll. In 2008, the pension fund lost 43 percent of its value, to a total of $7.2 million. The hospital responded by discontinuing the defined benefit pension plan for new employees and entering them into a retirement plan. Layoffs also followed.

After emerging from Chapter 11 bankruptcy in 2012 with a restructuring plan, Northern Berkshire Healthcare posted an operating gain of $3 million on revenues of $68 million. However, the hospital had $4.1 million of debt payments, for a net loss, though the settlement lowered the bond payments drastically.
Hopkins was unable to disclose the amount of debt the hospital currently had outstanding.

Management expenses were trimmed several times in recent years, according to Hopkins. A year before entering bankruptcy, the hospital paid its CEO and President Richard Palmisano compensation totalling $588,740. In 2011, when the hospital went into bankruptcy, Palmisano became director of the restructuring with $398,679 in compensation.

William Frado, a member of the board, became CEO at a rate of $137,490 in compensation. Frado declined to comment for this article.

Turton called the current situation "crushing to those of us who worked there for so long."

Turton said the board and administration of the hospital had been working feverishly since 2010 to try to sell the hospital to a bigger outfit in order to keep the jobs and provide health care to the community. Publicly, the organization said it was looking to affiliate with a health care institution.

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